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Will We Hold it Wednesday – DAX 11,800 Edition

Usually, we don't care so much about Europe.

However, Germany's DAX index is critically testing the 11,800 line, which would be it's lowest point since early 2017 and, in 2015, DAX had a 20% correction after failing at this mark – all the way to 9,000 so failing here would be extremely significant and the Euro Stoxx Index faces a similar test at 3,200 – but it's still 100 points above that line – a larger percentage (3%) than the DAX (1%) has to fall.  

Brexit, of course, remains the big story over in Europe but Italy is also falling apart and, just this morning, the Parlimentary Budget Office said the Government's forecast of 1.5% growth next year was exaggerated, indicating deficits will be larger than projected and far afoul of EU regulations.  Italy's debt is already 130% of GDP and that's considered a crisis – said the writer in a country who's debt is 110% of their GDP and also has BS inflated Government projections for economic growth.

Image result for italy deficitEU authorities are expected to declare Italy in violation of the bloc’s rules on fiscal discipline unless Rome changes course. Leaders of the League and 5 Star have defiantly denounced EU officials, raising the specter of a monthslong confrontation.  Last Friday, the EU’s executive arm criticized Italy’s budget plans, saying they represent a “significant deviation” from recommended fiscal policies.  Skeptical investors have dumped Italian bonds and stocks, especially banking-sector shares. The yield on Italy’s benchmark 10-year bonds touched a four-year high of 3.7% on Tuesday.  

3.7% is off the chart and that chart is up over 100% since May!  By comparison, Germany is still borrowing money at 0.55%.  Italian Finance Minister Giovanni Tria said the government is worried by the “unacceptable” bond yield spread, which on Tuesday was near the widest in more than five years.  "If the spread reaches 500?” Tria said in response to a hypothetical question. “The government will do what it does in an unexpected crisis, because we aren’t expecting that.”  That's not actually reassuring since Italy in the 70s and 80s massively devalued their currency and engaged in hyperinflation to pay off debts (ie. pay debts with worthless currency to pretend they aren't defaulting).  Italy, unlike Greece, is a $2Tn economy and a crisis there would spread rapidly.

Speaking of spreading rapidly, Fed Chair Powell is in Bali this week at a Global Policy Summit and Inonesia's Finance Minister kicked things off by stating that the Fed's rate hikes are triggering capital outflows that are damaging Emerging Market Economies.  The U.S. “needs to be very mindful that spillover from the effect of their policies is very real for many countries,” said the minister to open the conference.

As you can see from the chart, countries with high levels of Dollar-denominated debt are hit very hard when their currency (which they collect in taxes to pay the debts) is devalued against the Dollar, which is a function of the Federal Reserve setting their rates higher.  That leaves the emerging market with no choice but to raise their own rates to maintain what strength they can but that then increases all of their borrowing costs.  As you can see, Turkey and Argentina are completely F'd – there's no saving them from what's about to happen. 

Indonesia has been swept up in the rout that’s hit global emerging markets this year as rising U.S. interest rates, a stronger dollar and a worsening U.S.-China trade conflict prompt investors to dump riskier assets. The rupiah has slumped to its weakest level in two decades, breaking through the 15,000 level to the dollar last week despite strong action by authorities, including interest-rate hikes, import curbs and delays to some project spending.

The escalating trade war between the U.S. and China as well as the volatility that has engulfed emerging markets are set to be high on the agenda at the Bali gathering after the IMF on Tuesday trimmed its global growth forecast. The fund also warned that risks to the global outlook have risen in the last three months, which would accelerate capital flight from emerging markets.

“I don’t think that the Fed is reckless, I’m sure they take account of these things,” he said in an interview on Bloomberg Television from Bali. “What we didn’t foresee was that this could be taking place at a time when escalating trade tensions would then complicate the whole picture.”

Indonesia is a $1Tn economy that's in BIG trouble and that's what's going on at the moment on the other side of the World while we worry about who Taylor Swift is voting for.  Hope springs eternal among the Finance Ministers and, just this morning, there were rumors of sudden progress on US/China Trade Talks but, since there were no significant meetings scheduled – it's doubtful they were true.  Indeed, if this week's meetings don't show progress – Emeriging Markets (red line) have a lot further to fall than they already have:

The currencies (blue line) have already massively corrected but well-trained "dip buyers" have been holding up the indexes so far as they think they are getting bargains but those bargains have been a constant burn all year long and failure at this critical support line is likely to spark panic-selling and tax-loss-taking that can send things into a real tailspin – one that can form a vortex that sucks the major global markets down with it.  So we have that to look forward to...

We also have a potential 1,000-point drop in the Dow (/YM) to look forward to if it fails at 26,250 so yes to Futures shorts below that line if it fails, with tight stops above.  If the S&P is below 2,860 and the NYSE is still below 13,000 and the Nasdaq fails 7,275 and the Russell is below 1,620 – that's going to confirm a bearish market and we'll get more aggressive on our shorts but, so far, we're pretty well-balanced in our 5 Member Portfolios and we will review them today in our Live Trading Webinar.

As noted by StJeanLuc in this morning's Live Member Chat Room, the rest of the World is correcting and it's the US in general that's lagging.  A lot of this is because half our population (and most of the investing population) is brainwashed into believing in "American Exceptionalism", which is the same nonsense they believed in 2008, when the rest of the World was going to Hell and traders here thought we'd be immune.

It's a Global Economy and we're part of the globe but, just like with Global Warming and their parents' lack of adequate Retirement Funds, a large percentage of traders believe that, if they just ignore something long enough, it won't bother them anymore.  

Meanwhile, another terrible hurricane is barreling through the Gulf of Mexico and looks like it will hit the top of Florida at a category 4 (100+ mph winds), making it the strongest storm to make landfall there in the past 100 years with 6-9 foot storm surges plowing across what is essentially completely flat land so MASSIVE flooding is expected and then, to add insult to injury, the storm is projected to move up to the Carolinas, where it will add to their flooding troubles.

That's a lot of economic destruction to start Q4 off but it should be good for Home Depot (HD), who have pulled back 10% recently from $215 to $195 and should hold up at the 200 dma at $190 – as it has many times before.  I don't think HD is particularly cheap at $195 as that's $223Bn and they "only" made $8.6Bn last year so 26x earnings is still up there but Sears (SHLD) will likely be bankrupt soon and all that hardware business will go mostly to HD and LOW, who have similar multiples.

The best way to play a stock we WISH would go lower is to sell puts and, fortunately, HD has some expensive puts to sell so I like selling the 2021 $180 puts for $16 because, even if HD goes lower and it gets assigned – your net entry is just $164, which is another $31 (16%) below the current price so our worst case is owning HD at $164 and our best case is keeping the $16 so let's sell 5 of those in the Long-Term Portflio for $8,000 and see how it works out.  

Again, this is how we can make money, even in a choppy market, using the margin from our sidelined cash.  The Long-Term Portfolio is at $863,307 (up 73% for the year) so we have $1.5M(ish) in buying power and 5 short HD 2021 $180 puts uses $13,779 in ordinary margin on ThinkOrSwim so it's a margin-efficient trade and $8,000 is 1% of our total – on just that one trade – that's a lot better than putting money in the bank and waiting for your interest payments!

Be careful out there…


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  1. Good morning, All!

    Join us for the live weekly webinar, today at 1pm:

  2. Good Morning!

  3. Nikki Haley is so funny!

    “Look at what has happened in two years with the United States on foreign policy. Now, the United States is respected,” Haley said. “Countries may not like what we do, but they respect what we do.”

  4. Amazing numbers – it looks like the USA is the only bull market around:

  5. Look out for 10-year return numbers now that 2008 returns will disappear:

    But now, watch. At my request, Wiener figured out what the 10-year total returns through next February would be if the S&P is unchanged from its end-of-September level.

    I was surprised by the size. For the 10 years ending Oct. 31, the return would rise to 14 percent — a nice bump up from 12.6. For next February, the 10-year return would be an amazing 17.1 percent. (For November, December and January, the returns would be 14.9, 14.8 and 15.8 percent, respectively.)

    So last decade’s pain ends up being this decade’s gain.

  6. GM Phil – what would you recommend, currently, as a DXD hedge for a 100K portfolio? I'v got a small TZA hedge and the larger SQQQ hedge. TIA

  7. Interesting day so far – all the indices besides the Dow (but closing in) are below their 50 DMA. The Russell now below its 200 DMA.

  8. With the VIX (spot) over 18, tempting to add to volatility plays, but I am personally waiting for a bigger move to add.

  9. Good morning and wheeee! 

    As noted above, LTP suffering minor damage so far and we'll review it at 1pm in the webinar.  

    If anyone is feeling under-hedged, now would be a good time to discuss!  

    STP still doing its job, hit 166% yesterday and was $232,000 on the 19th so up $34,000 means it's doing it's job very well of protecting us but that doesn't mean we ride out any sort of damage on the LTP – that's a mistake we made in 2008 as we could have been much richer if we hadn't been happy simply to be "balanced" all the way down.

    As noted in StJ's chart, the US is the lagger to the downside of all the World's markets, which are generally well into 10-20% corrections while we're down 1.5%.  What really matters is Germany and, as noted in the title, if they break 11,800 – we're on the way to a 20% correction in Europe while China is already down 27% and Hong Kong 14% so call it 20% for China and Russia is worse than Brazil and no one pays attention to that?  Come on! 

    Reading over the noise from Bali I hear desperation and begging from EM countries who want the US to do something to help them but WE CAN'T because we're 110% in debt and our Fed already bought $4.5Tn worth of our debt and people have already lost interest in buying US paper for under 3% so we either keep monetary policy tight or our borrowing costs go higher and raise our $22Tn interest payments by $220Bn per 1% – we can't afford to save them – even if we had a President who gave a damn about brown and yellow people.

    Not only that but the World MUST kick in $2.5Tn (2.5% of GDP) to work on Climate Change starting NOW or we are totally F'd and most of the World is taking that seriously but will the US put up their $500Bn?  Not a snowball's chance in the Hell that will be Texas…

    Related image

    Haley/StJ – It goes to show you that scoring points for your party is much more important than personal integrity these days.  Haley know's it's a total lie and she knows she's becoming a joke in serious circles but that doesn't matter because, if you kiss GOP ass, you'll always have a job and endless perks (which Haley takes full advantage of).  

    But Haley has been navigating a series of land mines—IRS disputes, questionable business deals and appointments, multiple adultery allegations—any one of which threatens to blow up her political career. “I believe she is the most corrupt person to occupy the governor’s mansion since Reconstruction,” declared John Rainey, a longtime Republican fundraiser and power broker who chaired the state’s Board of Economic Advisers for eight years. A 69-year-old attorney, Rainey is an aristocratic iconoclast who never bought the Haley myth. “I do not know of any person who ran for governor in my lifetime with as many charges against him or her as she has had that went unanswered,” 

    And Nikki Haley is as corrupt as the rest of them – International …

    CREW Requests Investigation of Nikki Haley for Accepting Private Plane Flights


    Ambassador to the United Nations Nikki Haley should be investigated to determine if she complied with ethics regulations when she accepted seven free flights for herself and her husband on luxury private aircraft from three South Carolina businessmen, according to a request filed by Citizens for Responsibility and Ethics in Washington (CREW) with the State Department’s Inspector General.


    That last one just broke ahead of her resignation so she may just be fleeing the scene of the crime.  

    Wow, down 300!  /YM shorts looking FANTASTIC!  

    Returns/StJ – The decade ain't over yet.  

    DXD/Soma – You could have asked yesterday!  Fortunately, the short calls get more expensive faster than long calls.  I like the DXD April $26s for $4 as that's just 0.70 in premium and you can 1/2 cover those with the Jan $33s at $1 to pay for most of the premium and, if the Dow bounces, then you can also sell some Jan $30s (now $1.20) for $2 and put a stop on the $33s at 0.60 which would net you into the 1/2 cover at $2.40 so net $2.80 on the $4 spread that would be 1/2 covered.

    Don't forget you only want to MITIGATE the damage in a downturn so, if you are looking for a 10% Dow correction costing you 20% in your portfolio, that's $20,000 so your spread could be:

    • Buy 15 DXD April $26 calls for $4 ($6,000)
    • Sell 8 DXD Jan $33 calls for $1 ($800)

    That's net $5,200 and if the Dow drops 10% then DXD goes up 20% to $35 and your spread pays 8 x $7 = $5,600 + 7 x $9 = $6,300 so $11,900 is up $6,700 but hopefully you can 2x roll the short calls to widen the spread to closer to $15,000, where half the damage is erased.  On the downside, as I said, if you sell 7 of the $30 calls for $2 that's $1,400 and you've lowered the net to $3,500 while your portfolio positions should be doing well and, of course, you can then roll the long calls out to longer-term protection.

    Meanwhile, 2,850 on /ES should be bouncy, lined up with 26,150, 7,225 and 1,600 so I'd take the /YM money here as it's a quick $500 and we can reset if  these bounces are weak.

  10. Remember, 26,250 is the 25% line on /YM – that's more important than the bounce line on the fall from 26,500 which, at 26,150 is 350 so call them 75-point bounces to 26,225 and 26,300.

    /ES 2,880 is the 50 dma and 2,850 is the 30% line so whichever way that breaks.  Bounces from 2,900 to 2,850 would be 10 so 2,860 is weak and 2,870 is strong but we're not impressed if 2,880 fails.


    I'd call the Nas 7,450 to 7,250 for a neat 200 points but let's look for 50-point bounces to 7,280 and 7,310:

    /RTY 1,640 to 1,610 is 30 so I guess best to be exact and use 6-points for 1,616 and 1,622 although, on the daily chart, you can see that that's just a drop in the bucket and 1,740 to 1,600 is the real zone and that we'd call for 30-point bounces to 1,630 (weak) and 1,660 (strong) so let's just say anything less than 1,630 is a fail on /RTY.

    DAX failing critically along with EuroStoxx 

  11. Oil too crazy to risk ahead of inventories and up almost $1,000 so don't with those!  

  12. Actually, there may not be an EIA today due to Columbus day!  

    Wednesday's economic calendar

    No, it's tomorrow.  Still, too dangerous to short due to hurricane shutting down production (and demand but first production).  

  13. Thx Phil – so far the SQQQ and TZA hedges are keeping the portfolio safe and profitable!

  14. That's good Soma.  I know it's tedious to spend a year "wasting" money on hedges but the hedges help us feel better about putting long-term money to work – especially when we gain the confidence to know that we will be able to deal with the correction – when it finally happens.  

    Michael transforms into Category 4 storm

    • Intensifying into an extremely dangerous Category 4 hurricane, Michael is expected to strengthen further before making landfall in the Florida Panhandle or Big Bend area around noon today.
    • Oil producers – including Anadarko (NYSE:APC), BHP Billiton (NYSE:BHP), BP (NYSE:BP) and Chevron (NYSE:CVX) – have evacuated many personnel, with nearly 40% of daily crude oil production shut in the Gulf.
    • On watch are also insurers, power providers, hospitals, livestock and crop producers, generator manufacturers and building stocks.

    Stocks fall sharply as rates hold near multiyear highs; techs tumble hard

    • Stocks open sharply lower, with the S&P 500 poised to extend its four-session losing streak, as Treasury yields rose after data showed U.S. producer prices rose last month; Dow -0.7%, S&P -0.9%, Nasdaq -1.6%.
    • U.S. Treasury yields are higher, with the benchmark 10-year yield up 3 bps to 3.24%, although that's still shy of the seven-year high 3.26% it briefly touched yesterday; meanwhile, the two-year yield is up a basis point to 2.90%.
    • European bourses are broadly lower, with U.K.'s FTSE -0.4%, Germany's DAX -1.2%and France's CAC -1.5%; in Asia, Japan's Nikkei +0.1% and China's Shanghai Composite +0.2%.
    • In the U.S., most S&P sectors are lower in early trading, with tech (-1.2%) and industrials (-1%) struggling mightily, while utilities (+0.3%) is the best performing sector so far.
    • U.S. WTI crude oil -0.8% at $74.304bbl as oil traders watch Hurricane Michael's arrival, which has caused U.S. oil producers in the Gulf of Mexico to shut down 40% of oil production.

    Trump complains that the Fed is raising rates too quickly

    • President Donald Trump says he doesn't like the Federal Reserve's path of continuing to boost interest rates, CNBC reports.
    • The U.S. economy doesn't have a problem with inflation and the Fed is moving too quickly to keep prices from rising too much, he said.
    • The central bank last raised the benchmark interest rate in September, and appears poised to raise it again in December.
    • The U.S. 10-year Treasury note yield fell 3 basis points Tuesday to 3.20%. Earlier in the day it was as high at 3.26%.
    • Previously: Powell says Fed may raise interest rates above `neutral' (Oct. 3)

    Atlanta Fed Business Inflation Expectations

    Core PPI rises in-line with forecast

    Mortgage applications lower as interest rates rise sharply

    • MBA Mortgage Applications
    • Composite Index: -1.7% vs. +0.0% (W/W).
    • Purchase Index: +0.1% vs. +0.1%.
    • Refinance Index: -0.1% vs. 0.1%.
    • 30 year mortgage rate at 5.05% vs. 4.96%.

    Wholesale Trade inventories rise 1.0%, beats forecast

    • August Wholesale Trade: Inventories +1.0% M/M to $642.7B vs. +0.8% consensus, +0.6%  in July (unrevised).
    • Sales +0.8% at $511.1B.
    • Inventory to Sales ratio rise to 1.26.

    Amazon loads up on apparel inventory

    • Amazon (NASDAQ:AMZN) carries more merchandise from PVH (NYSE:PVH) than either Macy's (NYSE:M) or J.C. Penney (NYSE:JCP), according to some digging by Nomura Instinet.
    • "While SKU counts don't equal sales, this gives a general idea of the range of choice that selling on Amazon provides," reads the firm's update from analyst Simeon Siegel.
    • Amazon's growing SKU count coincides with a shrinking department store sector, highlighted even further today by the looming bankruptcy of Sears.
    • Siegel and team note that Amazon continues to find new brick-and-mortar approaches to consumers, pointing to the recent CK x Amazon Fashion Event in New York City last weekend and new 4-Star store.

    Apparel sector dragged down by LVMH commentary

    • The luxury sector sell-off is widening a bit after LVMH-Moet Hennessy Louis Vuitton  (OTCPK:LVMHF -8.9%) issues cautious commentary on China during the company's earnings conference call.
    • LVMH management confirmed during a conference call this morning that customs officials are enforcing rules on bringing goods back into the nation more rigidly (per Bloomberg).
    • Decliners include Canada Goose (GOOS -6.8%), Ralph Lauren (RL -4.4%), Michael Kors (KORS -3.9%), Under Armour (UAA -3.8%), Tiffany (TIF -6.9%), Tapestry (TPR-4%), Nike (NKE -3.5%), PVH (PVH -2.7%) and Fossil (FOSL -6%).
    • Previously: Luxury sector reeling after LVMH results (Oct. 10)

    FBI contacts trade group in ad industry media-buying probe

    • In an update to a federal investigation of media-buying practices in the advertising industry, influential trade group the Association of National Advertisers says it's been contacted by the FBI for help.
    • That group represents more than 1,100 different companies spending a collective $400B in advertising and marketing each year.
    • The FBI had issued subpoenas as part of its look into agencies getting rebates from media outlets, pointing to the potential for ad dollars being distributed more due to "kickbacks" rather than the best interest of clients.
    • The ANA has said that media owners paid rebates to agencies in amounts ranging from 1.67% to 20% of media spending, depending on the deal.
    • In major ad stocks today: WPP -1.4%; Omnicom (NYSE:OMC-1.5%; Interpublic Group (NYSE:IPG-1.6%; Publicis Groupe (OTCQX:PUBGY-2.6%; Havas owner Vivendi (OTCPK:VIVHY-0.1%.
    • Previously: Advertising stocks move further down on probe news (Sep. 28 2018)
    • Previously: WSJ: U.S. prosecutors probing ad industry media buying practices (Sep. 27 2018)

    Bloomberg: AWS signs $1B in contracts with Symantec, SAP

    BP's Dudley says critics threaten energy security, global economy

    • BP (BP -0.6%) CEO Bob Dudley says oil and gas will remain vital for meeting energy demand in the foreseeable future, despite the transition towards a low carbon world, and warns that critics calling for investors to sell out of oil and gas companies threaten energy security and the global economy.
    • “Renewables are growing at a remarkable rate,” Dudley tells the Oil & Money conference in London, saying they could supply about a third of the energy mix by 2040, “but we still need to meet the remaining two-thirds of demand.”
    • “Many trillions of dollars of investment in oil and gas will still be required to counter the substantial decline rates of existing fields," Dudley says.
    • The CEO says while groups have spoken about the financial risks of “stranded assets" – oil and gas projects that could become uneconomic if global carbon reduction targets are met and clean tech advances occur – the systemic risk comes from under-investment: “Suppose $2T less were invested than actually required to meet demand. The impact of such under-investment on financial stability could be much more far-reaching."
    • Dudley also criticizes activists who seek disclosures on the precise potential financial impacts on BP’s business, saying it would expose the company to arbitrary targets and legal challenges.

    REITs with Sears exposure drop

    • Seritage Growth Properties (NYSE:SRG), with master lease on 230 properties leased to Sears Holdings, sinks 5.3%.
    • Other REITs getting hurt by the news are CBL (CBL -3.7%) and Pennsylvania Real Estate Investment Trust (PEI -0.9%). Both have a lower occupancy/tenant sales than other REITs with Sears exposure and may have a harder time filling new vacancies, according to Bloomberg Intelligence's Lindsay Dutch.
    • Simon Property (SPG +0.1%), Macerich (MAC -0.4%), and Taubman (TCO +0.1%)--which all have some exposure to Sears--have strong occupancy rates and higher tenant sales, Dutch says. Also, their exposure has decreased and they've been proactive in recapturing some Sears store space, she adds.
    • Source: Bloomberg First Word.
    • Previously: Sears -20% as bankruptcy looms (Oct. 10)

    Guggenheim sees McDonald's running to new high

    • Guggenheim upgrades McDonald's (NYSE:MCD) to a Buy rating from Neutral on its view that the "Experience of the Future" investments by the company will pay off.
    • "The modernization efforts are designed to drive incremental customer visits and higher average check," observes analyst Matthew DiFrisco.
    • "The shared EOTF investment with franchisees should help further McDonald’s global leadership atop the fast food category as digital mobile ordering continues to redefine convenience and personalization for the consumer," he adds.
    • McDonald's has outlined that stores with the revamp see an initial same-store sales dip due to closures before seeing a sales lift.
    • Guggenheim takes McDonald's (MCD) to a Buy rating from Neutral and assigns a price target of $200 vs. the all-time high of $178.70.

    Franchisees weigh pushing McDonald's for more help with growth

    • Franchisees of McDonald's (NYSE:MCD) are planning a meeting Wednesday where they'll consider pressing the fast-food giant to help address worries about sales growth.
    • The hosts of the Tampa, Fla., meeting hope to discuss an advocacy group that would seek help from McDonald's in shoring up cash flows and profits.
    • Unlike some other chains, McDonald's doesn't have an independent franchisee group, and nearly all of the chain's restaurants are operated by franchisees.
    • McDonald's has pressed franchisees to improve outdated restaurants (via rebuilding or remodeling) and last year said it would help cover the costs of such improvements.
    • Q2 same-store sales rose a disappointing 2.6%

    AI chips drop on Huawei's new products

    • Chinese tech giant Huawei unveils two new AI chips, Ascend 910 and Ascend 310, aimed at data centers and IoT consumer devices.
    • Huawei wants to drive its hardware and cloud services businesses, which only accounted for a bit over 9% of last year’s revenues with a 35% Y/Y growth.
    • Competitors in the space include Nvidia (NVDA -2.8%), Qualcomm (QCOM -1.6%), AMD (AMD -2.5%), and Intel (INTC -2.1%). 

    Waymo hits 10M miles on public roads

    How to introduce self-driving vehicles?

    • Fully self-driving cars may be on the fast lane to U.S. roads under a pilot program the NHTSA is considering, which would allow real-world road testing for a limited number of autonomous autos.
    • Cars would potentially need to have technology disabling the vehicle if a sensor fails or barring them from traveling above safe speeds. Accidents or near misses may also need to be disclosed within 24 hours.
    • Previously: DOT takes hands-off approach to self-driving cars (Oct. 05 2018)

    Coeur Mining maintains full-year guidance despite lower Q3 production

    • Coeur Mining (NYSE:CDE+3% pre-market after reporting lower Q3 production resultsof 8.5M silver equiv. oz. but maintaining guidance for the full year.
    • Q3 production came in lower than the 9.1M silver equiv. oz. reported in Q2 and 8.6M silver equiv. oz. in the year-ago Q3.
    • But CDE says it still expects to meet FY 2018 guidance of 36.1M-39.5M silver equiv. oz., consisting of 13M-14.3M oz. of silver, 363K-382K oz. of gold, 13M-23M lbs. of zinc and 11M-18M lbs. of lead.
    • CDE says silver equiv. production at its Palmarejo mine in Mexico totaled 3.2M oz. in Q3, vs. 4.7M oz. in Q2 and 4.1M oz. in the prior-year quarter. hurt by the temporary suspension of mining activities relating to fatalities, supply chain disruptions from road blockades and weather-related interruptions.

    New battleground beverage-cannabis stock in the mix

    • There's a new cannabis-beverage company for investors to kick around after India Globalization Capital (NYSEMKT:IGC) announces that it has filed a patent application for the treatment of fatigue and energy restoration.
    • The company says the patent filing is one of a series of steps in its development and commercialization plan to support the creation of a branded, hemp/CBD sugar-free energy drink.
    • The method and composition patent filing relates to a composition of CBD and other cannabis extracts and the non-cannabis components of the Malaysian sugar free “Nitro G” energy drink.
    • Things are a little more interesting with IGC since Citron is already out with a short recommendation on the stock (yes, we are watching for a Citron tweet on the development). Keep an eye out on the sector as a whole as the volatility swings continue.
    • IGC +17.88% premarket to $5.67.

    Italy's Salvini: Italy-Germany bond yield spread won't reach 400

    • Italian Deputy Premier Matteo Salvini is "absolutely sure" the spread between Italian and German bond yields won't widen to 400 basis points, Bloomberg reports.
    • Salvini, who leads the anti-migrant League, and Luigi Di Maio of the anti-establishment Five Star Movement, both insist they'll stand by their campaign promises as the 10-year spread touched 308 bps. The last time it reached 400 bps was during the European debt crisis in 2012.
    • In recent trading, the spread narrowed slightly to 293 bps. Italy's 10-year government bond yield at 3.498%, while Germany's is at 0.564%.

  15. Bloomberg: Uber plans $1.5B junk-bond offering

    • Uber (UBER) is pitching a $1.5B junk-bond offering in a private placement, according to Bloomberg sources.
    • Sources say Morgan Stanley is leading a sale of $500M, 7.5% yield five-year and $1B, 8% yield eight-year notes in Uber’s first bond sale. Uber did dip into the leveraged loan market less than seven months ago in a $1.5B self-led financing.
    • Tech companies have become the second-largest leveraged loan issuer this year, selling almost $170B, according to Bloomberg data. 
    • Uber and Lyft (LYFT) are in a race towards IPO with Lyft in the lead, planning a Q1 debut compared to Uber’s 2H19 plans.  
    • Previously: Bloomberg: Lyft seeking formal proposals from banks for 2019 IPO (Oct. 9)

    Analysts lower their Alibaba targets after management discussions

    • Barclays analyst Gregory Zhao drops his Alibaba (NYSE:BABA) target from $225 to $210 and lowers Q2 forecasts citing new initiative investments and potential near-term search ad spend cannibalization from the new recommendation feed. Rating stays at Overweight.
    • Deutsche Bank analyst Han Joon Kim sticks with Buy but drops from $196 to $189 expecting Q2 GMV to come in under the Q1 figure and noting that the new Taobao app might need more time to take hold. 
    • Other movers: KeyBanc, $220 to $215 (Overweight); Morgan Stanley, $240 to $220 (Overweight); Raymond James, $280 to $260 (Strong Buy); SunTrust, $205 to $195 (Buy). 
    • Source: StreetAccount. 
    • Alibaba shares are down 0.4% premarket to $146.30. 

    CROP Hemp-CBD farm enters toll processing deal to produce CBD isolate as it readies for harvest

    • CROP INFRASTRUCTURE (OTCPK:CRXPF) has signed a toll processing deal whereby it will provide its dried hemp-CBD biomass to a processor who will then provide 50% of the finished product as ISO certified CBD isolate to CROP’s tenanted farm.
    • The CBD isolate will be sold under the company’s brands Hempire, Tiff CBD, infused in to the company’s CannaDrink and sold under white label.
    • CROP will also be working with the toll processor to enter into further agreements to develop its own ISO extraction facility for its production capacity which is now expanded to over 1,800 acres for 2019.

    Cummins approves share repurchase program

    • Cummins (NYSE:CMI) has authorized the company to repurchase up to $2B in shares of common stock upon completion of its 2016 $1B share repurchase program.
    • The board also declared a quarterly cash dividend on common stock at $1.14 per share, payable on December 3, 2018 to shareholders of record on November 15, 2018.

    JetBlue Airways reports 18.5% growth in September traffic

    • JetBlue (NASDAQ:JBLUreports revenue passenger miles rose 18.5% to 3.89B in September.
    • Capacity advanced 19.3% to 4.88B available seat miles.
    • Passengers flown increased 15.4% to 3.2M.
    • September load factor down 50 bps to 79.7.
    • YTD load factor grew 80 bps to 85.6%.
    • The company expects Q3 revenue per available seat mile to  increase by ~1.7%, consistent with the prior guidance range of 1% to 3%.
    • JBLU -0.23% premarket.

    Sears -20% as bankruptcy looms

    • Sears Holdings (NASDAQ:SHLD) has been working with banks to arrange bankruptcy financing, according to CNBC.
    • The news follows on last night's separate report that Sears hired an adviser to help walk it down the bankruptcy road.
    • Eddie Lampert controls Sears through his 31% personal stake and the 19% held by ESL Investments.
    • A Sears bankruptcy could have some implications for Macy's (NYSE:M), Kohl's (NYSE:KSS), J.C. Penney (NYSE:JCP), Dillard's (NYSE:DDS) and Nordstrom (NYSE:JWN) if the U.S. department store retail footprint is shrunk a bit more.
    • Sears is down 20% in premarket trading to $0.47.

    WSJ: Sears hires adviser to prep bankruptcy filing

    • With a Monday debt payment looming, Sears Holdings (NASDAQ:SHLD) has hired an adviser to prepare a bankruptcy filing for as soon as this week, The Wall Street Journalreports.
    • Boutique firm M-III Partners has been working on the filing, according to the report.
    • The company has $134M due on Monday, which could be provided by Chairman/CEO Eddie Lampert (as he's done in the past). But he's now pushing for a bigger restructuring, the WSJ says, in order to shrink the company back to profitability.
    • Sears is still discussing other options and might yet avoid an in-court restructuring plan.

    Amazon expands grocery delivery and pickup from Whole Foods Market to more cities

    • Amazon (NASDAQ:AMZN) announces that Prime members in Annapolis, Cleveland, Louisville, North and Central New Jersey and Pittsburgh can enjoy delivery in as little as an hour from Whole Foods Market
    • Additionally, grocery pickup from Whole Foods Market expands to three new cities including Dayton, Louisville and Omaha
    • “Prime Now delivery continues to be a hit with our customers and we’re excited to introduce the service in five new cities plus more neighborhoods in the San Francisco Bay Area,” said Christina Minardi, Whole Foods Market Executive Vice President of Operations. “And for our customers in Dayton, Louisville and Omaha, we’re thrilled to also offer the option of grocery pickup. It’s just another way we’re making it even easier for more customers to enjoy Whole Foods Market’s healthy and organic food.”
    • AMZN +0.26% premarket.

    Turkey vows 'all-out war' on inflation

    • Unveiling a new set of measures, Turkish Treasury and Finance Minister Berat Albayrak has promised an "all-out war" on inflation, with the private sector agreeing to cut prices on its goods by at least 10% across the board.
    • The program will also included a freeze on energy prices until the year-end and an acceleration of VAT rebates.
    • Turkey's annual inflation reached 24.52% in September, up from 17.9% in August.

    Walmart Canada explores cannabis-based products

    • With Canada on the verge of becoming the first major economy to legalize recreational marijuana, Walmart's (NYSE:WMT) Canadian unit is exploring the possibility of selling cannabis-based items, but has no immediate plans to "carry CBD products at this time."
    • Shares in cannabis producers have rallied in anticipation of the legislation and the latest news boosted Walmart shares nearly 3% in afternoon trading on Tuesday.

    EU agrees to seek CO2 cut on cars

    • Compromise… EU nations have agreed to seek a 35% cut in car emissions by 2030, compared to 2021 levels, as Germany warned that overly challenging targets risked harming the industry and jobs.
    • The final rules will be hashed out in talks beginning today with the bloc's two other lawmaking bodies: the European Parliament, which is seeking a more ambitious climate target, and the European Commission, which proposed a lower one.
    • Previously: EU nations weigh CO2 car curbs (Oct. 09 2018)

    Time to buy Kinder Morgan and other MLPs, Goldman analyst says

    • MLPs, pipeline companies and C-Corps have had a so-so year overall, but Goldman Sachs analyst Michael Lapides believes now is the time to buy, foreseeing improving cash flow across the sector from this year through 2021.
    • He notes that the companies will benefit from ongoing simplification of corporate structures, as more companies morph into C-Corps, while rising U.S. production also will provide a tailwind.
    • Kinder Morgan (NYSE:KMI) is Lapides' top pick and added to Goldman's Conviction Buy list; he likes that KMI's leverage is on the decline while the company’s cash flow improves, and he expects more share repurchases on top of a ~20% dividend over the next three years.
    • Lapides also has Buy ratings on Energy Transfer Equity (NYSE:ETE) and Tallgrass Energy (NYSE:TGE) citing valuation, improving cash flow and leverage metrics, but tags Neutral ratings to Cheniere Energy (NYSEMKT:LNG) and Enterprise Products Partners (NYSE:EPD) on valuation.

    WSJ: SoftBank discusses taking majority stake in WeWork

    • SoftBank Group (OTCPK:SFTBY) is in talks to take a majority stake in WeWork(VWORK), in what would be a healthy bet on the future of the co-working space company, The Wall Street Journal reports.
    • That could mean an investment of $15B-$20B from SoftBank's Vision Fund technology hoard, which already owns almost 20% of WeWork.
    • The move would be one of the biggest deals of the start-up boom. SoftBank had previously talked with WeWork about a smaller investment that would value the co-working company at up to $40B, the WSJ says.
    • Previously: WeWork secures $1B SoftBank investment (Aug. 10 2018)
    • Previously: WeWork China raises $500M from SoftBank, Temasek (Jul. 26 2018)

    Wireless big four deny being the telecom in Super Micro hack story

    • Today's latest Bloomberg report on hacked Super Micro (NASDAQ:SMCI) hardware alleged that a U.S. telecom discovered "manipulated hardware" in its servers — though major U.S. telecoms including the big four in wireless are denying that they're the company in question.
    • Motherboard's efforts to reach out to 10 major providers brought denials from Verizon (NYSE:VZ), AT&T (NYSE:T), T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S).
    • CenturyLink (NYSE:CTL), Comcast (NASDAQ:CMCSA) and Cox also denied being the company in the story. Apple and Amazon have denied that their server hardware was affected by claims that China planted tiny extra chips on motherboards for spying purposes.
    • That would leave some smaller telecoms such as Frontier (NYSE:FTR), U.S. Cellular (NYSE:USM)/Telephone & Data Systems (NYSE:TDS) and Shenandoah Telecommunications (NASDAQ:SHEN) as possibilities.
    • Bloomberg's source, security consultant Yossi Appleboum, is covered by a nondisclosure agreement and it's not clear Bloomberg knows which U.S. telecom was attacked, Motherboard says.
    • Super Micro closed the day down 15.5%. Shares are down 41.7% from their Oct. 3 close.

    American Airlines dives 6.5% to two-year low on fuel cost concerns

    • American Airlines (NASDAQ:AAL) shares skidded to their lowest in more than two yearsin today's trade, -6.5% after saying its Q3 fuel costs were higher than expected and detailing the impact from Hurricane Florence last month.
    • In addition to the higher fuel costs, the airline said Q3 pretax income would be reduced by $55M because of 2,100 flights grounded by Hurricane Florence last month.
    • AAL is down 36% YTD, more than any other U.S. airline, ramping up pressure on the company to convince investors that the carrier can increase profits as fuel prices rise.
    • “Increased revenue in [Q3] wasn’t enough to offset higher fuel costs, suggesting that margin expansion is unlikely to occur until 2019,” says Cowen analyst Helane Becker, adding that AAL will need to work harder to cut expenses and improve operations as a way to boost profit margins.
    • Any concern about fuel hits AAL especially hard, says Imperial Capital's Adam Hackel, noting that when the airline merged with US Airways in 2013, it adopted that carrier’s policy of not buying hedging contracts; the price of jet kerosene has surged 39% over the past year.

    Third Point ups Campbell Soup stake to nearly 7%

    • Campbell Soup (NYSE:CPB+0.5% after-hours as Daneil Loeb's Third Point Management increases its stake in the company to 6.98% from 5.65% after purchasing more than 4M shares since Sept. 28, according to an SEC filing.
    • Third Point, which announced its intention to try to replace CPB's entire board earlier this year, has been unhappy with CPB's performance and said the company did not fully evaluate a potential sale as part of a three-month critical review.

  16. wow, look at all the asset managers like BLK, BX, APO, KKR   

  17. Fed / Phil – It's incredible that we have a president now who simply doesn't hold back on his criticism of monetary policies. Another norm being broken I guess… Of course by someone who needs to borrow a lot of money so definitely an interested party. And yet, no comment from Congress.

    Can't wait to have a real watchdog in place and go over some tax returns!

  18. Dow hitting the 50 DMA now! I hope that we have a meaningful flush coming up.

  19. NYSE hitting its 200 DMA so the tech picture is getting very interesting.

  20. CAH ??

    Trump to sign bills aimed at increasing drug price transparency

  21. everytime 45* crosses a line I think of this

  22. Things seem to be calming down and it's Webinar Time!  

    CAH/Stock – That's why I was worried as they have thin margins to begin with.

  23. Wow, was everyone on the Webinar?  That's good, we covered a lot of stuff.

    I've got 2 /RB long at $2.024 at the moment, looking for 4 at $2.02 avg.  Also one /YG long.  

    2.5% drops without bouncing back to 2% (20% retrace) would be bearish for tomorrow so that's the cheat sheet for the last hour. 

    If you want to play a bounce, /YM long at 25,850 with tight stops below is worth a toss.  

    If we finish this low the technicals are very ugly.

    PS – I'm flying to NYC tomorrow so only here until 1pm – hopefully the World doesn't end…

  24. NOW people are concerned: 

  25. Interestingly – "value" stocks like GE, FTR, ABX, GNC not moving much. Wonder if the selling is mostly index driven?

  26. Yeah, some of the non-tech stuff that's already been hit seems to be fairly stable. Maybe it's true that they always come for the dogs at the end of a rally – or at least they stop selling them.

    Great webinar on an interesting day! 

  27. Good webinar. Glad I grabbed that DXD hedge. lol. Doh!!

  28. 3:13pm, FTR -3.4%

  29. Well, I got my 4 /RB longs at $2.02 now… 

    MO/DC – Not down on a terrible day – that's pretty good. 

    Value/Mito – I think there are enough buyers who've put their foot down on those stocks at this point.  Even F is still at $8.90.

    Thanks Ati, Soma.  Looks like we may have to add more hedges tomorrow after all.

    FTR/Mike – They are getting hit right in their new area (that they paid Billions for) by the hurricane.  Nothing they can do about  that…

  30. VIX / Phil – The spot VIX is actually at 21 now so even more worried. Things are turning ugly!

  31. We might no need to add lines to the big chart after all! I might post the new one tonight for an earlier analysis.

  32. We have just erased the August and September gains!

  33. Wow, big selling frenzy into the close.  

    STP up 174% but LTP doing well at 88% as we sold all those Jan calls, thank goodness.  

    Still, tomorrow we'll have to add another layer of hedges – in case this turns into a major sell-off.

    2,800 on /ES!  

    So funny, every time we are just on the verge of capitulating on the Big Chart lines.  This is good though, will give us bottom tests to support our new range. 

  34. The Russell erased the last 6 months or so… Wheeeeee!

  35. Down down over 800. I was going to get into some short term puts again later this month. Missed this one almost completely!

  36. Gonna roll some VXX calls tomorrow and we have another day like this one, add more! Good times…

  37. PYX is getting into pot and up and down like crazy but what I really like about them for the LTP is:

    • Buy 25 PYX 2021 $15 calls for $30 ($75,000) 
    • Sell 25 PYX 2021 $55 calls for $20 ($50,000) 
    • Sell 5 PYX Nov $50 calls for $7 ($3,500) 

    So the net is $21,500 and we are selling just 37 out of 828 days and it's a 1/5 sale so we have 20 of those ahead of us for a potential $70,000 return on our $21,500 investment PLUS up to $100,000 back on the spread if we're over $55.  I love this trade!  

  38. Looking at the Nasdaq, we have not closed below the 200 DMA since June 2016 and we are really getting close now.

  39. This board is always great during a big down move – opportunity everywhere in both directions. Calm, cool & collected, harvest those winners, rinse & repeat.

  40. Yes and I'm so glad all my doom and gloom warnings did not go unheeded!  

  41. Phil/ RB- do you still have long?

  42. Unfortunately, I have 4 that are down $1,000 each at the moment ($2.02).  Not sure I want to DD on those without seeing inventories.

    /NQ with a nice bounce off 7,000 at the moment but down from 7,400 means 7,080 is weak and 7,160 is strong – I don't see a catalyst for that.

    The American Petroleum Institute (API) reported a major build of 9.75 million barrels of United States crude oil inventories for the week ending October 5, compared to analyst expectations that this week would see a much smaller build in crude oil inventories of 2.62 million barrels. The build is the largest build since February 2017, according to Zerohedge.

    Last week, the American Petroleum Institute (API) reported a build of 907,000 barrels of crude oil.

    The API reported a build in gasoline inventories as well for week ending October 5 in the amount of 3.4 million barrels. Analysts had predicted a draw of 42,000 barrels in gasoline inventories for the week.

    Distillate inventories were down this week—by 3.5 million barrels, compared to an expected draw of 2.005 million barrels.

  43. These are very long bars. Destroyed months of gains in one afternoon.

  44. Futures are making things worse.  

  45. Phil / LB –  Should be interesting - 

    Oct 11 – L Brands, parent of Victoria's Secret  to announce September sales figures.

  46. ‘Cartel’ Chatroom Messages Show Currency Conspiracy, Prosecutor Says

  47. All About the U.K.-China Plan to Link Stock Markets

  48. `It’s Just a Beginning’: Investors React as Stock Rout Hits Asia

  49. Tokyo’s Famous Fish Market Re-Opens With a Tuna Auction

  50. Good morning! 

    Well, we got our 1,000 points so now what?   When I called that yesterday morning I didn't think it would happen within 24 hours so it's a bit disturbing and now we have to consider whether or not this is going to be a good place to deploy some cash.  

    /YG is up $600 per contract from yesterday's Webinar call so that's good enough on those and it's very disturbing that this sell-off is coming along side a 1% Dollar drop as it means the markets are even weaker than they look:

    Still getting killed on the /RB shorts but I have 8 long now at $2.0001875 (missed it by that much…) and still down about $1,000 per contract, which is 2.5 cents on /RB and I think we can take that back if EIA isn't as tragic as API and I THINK API was reflecting last week's terrible EIA number – so it's behind the curve and I still think the hurricane will shut refinery production and also cause less oil to be imported through the gulf this week – but we won't see the result until next week's inventories.

    Overnight the Dow tested 25,174, which is a bit above the 200-day moving average which had better be strong-bouncy or we're heading much lower!  This was a long-overdue correction and will be good and healthy if the 200 dmas hold up but RUT is now below the line so it needs to take back 1,620 (now 1,559) before I feel good about bottom-fishing. 

    Anyway, one thing at a time.  So 25,140 is the 200 dma on the Dow and we've fallen from 27,000 so I'd call it 2,000 points to 25,000 in the Big Picture but, in the littler picture, there was super-toppy action at 26,500 ahead of this drop and I'd go by that and a 5% fall to 25,175 is exactly what we got this morning.

    Remember, as we were saying in the Webinar, we also have to pay attention to the time-frame of the bounce because a strong bounce that takes longer than the dip is not a very strong bounce and more likely to fail so we've only got today to hit that 25,700 line or we'll have to push our hedges higher into the weekend.

    Given the Dow had a 5% correction, we can expect the same action from the other indexes so:

    2,940 x 0.95 is 2,793 so let's call it 2,800 and call it 2,950 to keep things neat and that's 150 points so 30-point bounces to 2,830 and 2,860.  Problem is we overshot the mark but that's OK as a 30-point (20%) overshoot to 2,770 is normal enough but we need to see that taken back very quickly to support the 5% line. 

    From an intra-day perspective, we stick closer to what actually happened on the chart and that's 2,880 (the 50 dma) to 2,750, which is 130 points so call those bounces 25 points to 2,775 and 2,800 so just getting back to the -5% line is the goal of the day otherwise – DOOM!!!!

    Nasdaq 7,700 was the high-water mark and that is exactly 42.5% over the old Must Hold level of 5,400, where we topped out in 2000.  As we know, it's really the AAPLDAQ so let's consider AAPL's high of $233 and 5% below that is $221 and AAPL blew that but they really topped out at $230 since 9/1 so better to work with that and call it $218.50 which is $12 so $2.50 bounces and $216 is the overshoot.

    Pretty much we can watch AAPL for the story of the whole market.  Is the most valuable company on Earth (by a wide margin now) and the only one that comes close to justifying it's $1Tn valuation able to attract bidders after a 5% correction.  If not – what hope can the rest of them have?  If AAPL fails to hold $216 – then the 10% line on AAPL is $207 and below that is a 20% correction = all the way to $184 but, as you can see on the chart – AAPL was obeying those lines on the way up – so why wouldn't it on the way down?

    Pre-market we're at $213.  

    So, getting back to /NQ, we're in a 10% correction (which is why SQQQ was our primary hedge) from 7,700 to 6,930 and the 5% correction was 7,315, which held on 10/8 but wasn't even a pause yesterday so I hesitate to even used 7,315-6,930 as a range.  If I did, the strong bounce of that drop would still be the weak bounce of the 10% drop so I'd have to say that NOTHING less than the weak bounce of the 10% drop on the Nasdaq would be in the least bit bullish.

    7,700 to 6,930 is 770 points and 20% of that is 154 points so 7,084 we can call 7,100 and that's our primary goal and 150 over that is 7,250 and that's where we start to recover.  Given that AAPL $184 is RIDICULOUS and would cause me to sell everything and buy AAPL, I'd say we're not going to get a 20% correction or, if we do – it will be a brief one.  

    We are, however, in a panic and there are other Nasdaq stocks that deserve to be much lower so AAPL may get dragged down with the index – I just don't see it lasting.  We're checking our bounce lines mostly to know when to cash out our hedges – not so much to get bullish too quickly!  

    So NOTHING less than 7,100 on /NQ is going to be a bullish indicator and the same 150-points below 6,930 – call it 6,800 would be an overshoot to the downside on a 10% correction but below that is – DOOM!!! 

    That leaves us with the Russell, the index that started this disaster.  It topped out at 1,740 back in early Sept and everyone acted like it didn't matter that small caps were correcting (or that the rest of the world was correcting) until, suddenly, it did.  I don't want to say I TOLD YOU SO but….

    Anyway, 1,440 was the Must Hold line on the RUT and 1,728 was the 20% line so that's the line we'll use and that makes 1,555 the 10% correction but really it's 1,584 that matters as that's the 10% line from the Must Hold, which always takes precedence once you get in the zone.  

    That's right, as of this morning, the 1,584 box on the Big Chart goes RED for the first time since early May!  The 12,800 box is also red on the NYSE and it's been a long, long time since the boxes have come into play but gaining two red boxes is VERY BEARISH and we can't be bullish again until one of them goes away – so both of those lines are VERY SIGNIFICANT.  

    So, getting back to the RUT, it's 1,584 or bust into the weekend and we're at 1,560 pre-market, off a low of 1,552 – which is the 10% line so, below that is – DOOM!!!

    Hopefully, that's a nice, clear guideline to get your day's trading started.  

    I think 2,750 on /ES is the best long line with tight stops below and 6,780 on /NQ should be fun if dip buyers come in with a stop below 6,775 (Nasdaq loves those 25-point lines) and then we'll watch the rest of our bounce lines to see if we're going to add more hedges or take profits on the ones we have.